Newsletter – September 2018

It is now 10 years since the collapse of US Investment bank Lehman Brothers and that has resulted in much commentary on the global financial crisis (GFC). For anyone really interested in this there’s an excellent but lengthy book that I can recommend by Adam Tooze, Crashed: How a Decade of Financial Crises Changed the World, but here are a few of my thoughts:

In 2007-08 almost no-one anticipated a financial crash in the US and certainly not one brought on by risky housing loans. These events are fortunately rare but hard to see in advance.

Few would have anticipated that the developing crisis would spread globally. In an interconnected world contagion is common so a problem in one place can rapidly spread to others. It did.

The extent of the share market falls at around 50% in most countries were unprecedented since the great depression of the 1930s and hence hit many people very hard. This is one reason that older people, particularly retirees, need to be more cautious with investments than a younger person with time on their side for the recovery to come through.

While the causes of the GFC can be debated, excessive debt levels at both companies and individually were major contributors. This will again will likely be a key factor in the next downturn when it arrives; that is unlikely to be before 2020.

Companies with sound businesses were hit hard but gradually recovered (think of the big banks, BHP, Woolworths, etc) but some of the high flyers went under and investors lost all their investment (think Allco Finance, Babcock & Brown, Centro Property). High debt levels played a big role in most wipe-outs.

Decisive and massive action by Governments and Central Banks, like our Reserve Bank, were critical to stemming the disruption which could have been even worse. A concern I have is that with interest rates globally stuck at historically low levels (even with US rates rising moderately) and most Governments already heavily indebted, should another crisis strike the ability to counteract it is more limited than a decade ago.

Does the proposed demerger of Financial Wisdom & Colonial First State impact you?

To give personal financial advice in Australia, an adviser must hold an Australian Financial Services License. Currently, Ramsay Financial Group is authorised to provide financial advice under the Financial Wisdom license. Financial Wisdom is a wholly owned subsidiary, and part of the wealth businesses of the Commonwealth Bank. Andrew, Steve & Josh are not employees of Financial Wisdom or the CBA.

On Monday 25 June, Commonwealth Bank has announced steps to demerge their wealth businesses into a new, separate financial services company called CFS Group.

The CFS Group will include CFS Global Asset Management, Colonial First State, and the self-employed financial advice businesses which includes Financial Wisdom. If approved, the demerger is expected to complete in 2019.

It’s important to note that Ramsay Financial Group will continue to operate as its own business now and post the Financial Wisdom demerger from the Commonwealth Bank. This change will also not impact your financial plan or any investment and insurance arrangements that are part of your portfolio.

If you have any concerns or questions about this announcement, please contact us.

From our end, it’s business as usual and we remain committed to helping you and your family achieve your financial goals.

Are Royal Commissions significant events for investors?

Should there be any doubt about the potential significance of a Royal Commission, the announcement of a new Royal Commission into the Aged Care sector clearly demonstrates that these investigations can have big impacts for investors. On the first day of trading after the Aged Care Royal Commission was announced by new Prime Minister Scott Morrison, stock exchange listed aged care providers were sold down by investors concerned about what might be revealed and what the implications might be. Estia Health (EHE) fell 18.6%, Japara Healthcare (JHC) 17.0% & Regis Healthcare (REG) 17.1%. That’s before the terms of reference for the Royal Commission have even been determined!

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services has revealed significant poor behaviour (or worse) across banks, insurance companies and superannuation providers; this has not only damaged the reputation of these businesses but also hurt their owners – shareholders. So, the answer is, yes, a Royal Commission can most definitely be a big deal for investors if bad behaviour is revealed or even suspected.

While most would agree that Government regulatory action to counter misbehaviour by business is warranted and beneficial in the long term, it does come at some cost. The opposite is currently happening in the US where, whether you agree with it or not, deregulation by the Trump administration is one factor boosting corporate profitability and share prices.

Living Independently: A look at in-home care options

Is someone you know in need of aged care services but not quite ready or willing to move into residential care? With a range of government programs and technological solutions available, many older retirees are now able to get the support they need in the comfort of their own home.

The decision to move into an aged care facility – whether for yourself, your partner or a relative – can be an emotionally charged one. Not only is it a major life change; it often means selling the family home as well.

Many seniors would prefer to live independently for as long as possible, and there are a growing number of options available to support this choice – from government-funded services to technological solutions. If you would like more information about these options, please click on this link.

This newsletter contains general advice. It does not take into account your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.